Non-Financial Reporting Directive - What Does the Guidance Tell Us?

The Non-Financial Reporting Directive (NFRD) will be with us in 2018. The law will require some large companies to report on how they manage environmental and social issues.

The aim of the law is for companies to provide “relevant, useful and comparable” information; promoting transparency and helping stakeholder evaluate a company’s resilience and sustainability.

So, is your company one of the 6,000 affected by the NFRD? If so, what do you need to do?

What should you report?

Companies are spoilt for choice with reporting frameworks and the European Commission has (thankfully) chosen not to add to the mix. They have however produced non-binding guidelines on non-financial reporting.

These guidelines reflect, and indeed reference, mainstream and niche international, European or national reporting standards, including GRI, UNGC, ISO 26000, CDP. In fact, the guidelines state that companies may (I read should) use one (or more) of these high quality, recognized non-financial reporting standards.

With the emphasis on providing relevant, useful and comparable non-financial information, the guidelines provide broad direction on what to include and how to present it. There are lots of useful examples and suggested KPIs to help bring the guidelines to life. At a high level:

• The content: 

  • Should be material – with broad suggestions on how to identify material topics
  • Contextual information should be provided – on the business model, policies, approach to risk, and any relevant key performance indicators.
  • Material information on the specified themes should be included – suggestions are made on the kind of information and KPIs that could be disclosed – but companies should report on any material topics, even if they aren’t covered by the themes. 
  • The themes are:
    • environmental protection
    • social responsibility and treatment of employees
    • respect for human rights
    • anti-corruption and bribery
    • diversity of the company board

• The information should be:

  • Fair, balanced and understandable – ensuring facts are distinguished from opinion, supporting information is provided where necessary and the scope is clearly defined
  • Comprehensive but concise – not limited to material information covered by the themes but covering any material issues.
  • Strategic and forward looking – while not disclosing commercially sensitive information, giving stakeholders an insight into the company’s plans and objectives.
  • Stakeholder oriented – providing the information that stakeholders (in general) want to know.
  • Consistent and coherent – consistent with the annual or management reporting and over time to allow fair comparison.

While none of the above is revolutionary, it certainly reflects best reporting practice and a certain robustness seems to be expected. There is also a lot of flexibility. So while many companies will be covering this, and more, in their existing reporting, it provides an opportunity to reflect on and refresh your reporting to ensure it meets the grade.

As each country has enacted the directive into law slightly differently, steps are also needed to understand national requirements.

What next

Anthesis can offer you a comprehensive service to ensure that you meet the new legislative requirements. We have developed a four-stage process for supporting our clients:

• Screening – we can conduct a screening study of your current reporting vs the applicable reporting requirements.
• Data management – once any gaps have been identified we can advise on how these can be closed and help with any new data requirements.
• Strategy – if a change in strategy is needed in any area we can work with you to deliver this.
• Reporting – last but not least, we can work with you to ensure your reporting meets all the requirements.

Alex McKay is a Principal Consultant at Anthesis Group. For more information see our factsheet or alternatively, use our fill out form below.